Carson Wood Products processes logs into four grades of lumber totaling 500,000 board feet as follows at a joint cost of $300,000: $$\begin{array} { l c c }
\text { Grade } & \text { Board Feet } & \text { Final Sales Value } \
\text { First and second } & 75,000 & \$ 56,250 \
\text { No. } 1 \text { common } & 200,000 & 180,000 \
\text { No. } 2 \text { common } & 100,000 & 105,000 \
\text { No. } 3 \text { common } & 125,000 & 127,500
\end{array}$$ What amount of joint costs will be allocated to No. 2 common using the constant gross margin percentage method?

Question

Carson Wood Products processes logs into four grades of lumber totaling 500,000 board feet as follows at a joint cost of $300,000: $$\begin{array} { l c c } 
\text { Grade } & \text { Board Feet } & \text { Final Sales Value } \
\text { First and second } & 75,000 & \$ 56,250 \
\text { No. } 1 \text { common } & 200,000 & 180,000 \
\text { No. } 2 \text { common } & 100,000 & 105,000 \
\text { No. } 3 \text { common } & 125,000 & 127,500
\end{array}$$ What amount of joint costs will be allocated to No. 2 common using the constant gross margin percentage method?

Quizplus · Accepted Answer

The constant gross margin percentage method allocates joint costs based on the ratio of each product's gross margin to the total gross margin. The gross margin for each product is calculated as the difference between its final sales value and its share of the joint costs. The total gross margin is the sum of the gross margins for all products.For No. 2 common, the gross margin is $105,000 - $37,800 = $67,200. The total gross margin is $56,250 + $180,000 + $105,000 + $127,500 = $478,750. Therefore, the ratio of No. 2 common's gross margin to the total gross margin is $67,200 / $478,750 = 14%.The amount of joint costs allocated to No. 2 common is $300,000 x 14% = $37,800.

Carson Wood Products Processes Logs into Four Grades of Lumber